Environmental taxes are being used as policy tools to internalise environmental costs and promote sustainable practices. This study looks at the economic impact of environmental taxes on manufacturing and transport sectors globally and in India. A mixed method approach with quantitative and qualitative tools is used to analyse data from OECD, Eurostat, World Bank and Indian government publications. Econometric models are used to measure the impact of environmental taxes on sectoral indicators and case studies from Sweden, Germany and India are used to understand the impact of tax design, political economy and sectoral readiness. The results show sectoral differences in how environmental taxes affect economic outcomes. In OECD nations, energy taxes are effective in reducing CO2 emissions in transport and manufacturing sectors, but in case of India, the coal cess has had a mixed impact on the industries using coal. Sectoral impacts will be mitigated by revenue recycling schemes (like eco-innovation grants and payroll tax cuts). Environmental taxes, as long as they are well designed and not distortive, can support inclusive green growth when use of revenues is recycled and when they are coupled with credible policies and support to technology development, the study concludes. Such steps require policymakers to understand the nature of green taxation and its principles of application and provide the necessary action plan in terms of transparency, provision of sectoral transition and public private partnership.

Keywords: Economic Impact, Corporate Social Costs, Environmental Taxes, Policy Implications, Sector Specific Impact.